Fast-growing M2 buys Dodo, makes Eftel offer

blog Remember when there were dozens of Internet service providers in Australia’s ISP market, all offering different products and services? Yeah. Those days are over. And this morning the market shrunk yet again. According to a cluster of media releases and company presentations issued to the Australian Stock Exchange this morning, fast-growing telco M2 Telecommunications, which already owns the Commander, Primus, People Telecom, Southern Cross Telco and Clear Telecoms brands, has bought independent ISP Dodo for $203.9 million and has made an offer for similarly independent ISP Eftel for $44.1 million. The statement from M2 chief executive Geoff Horth about the deals:

“We are excited to bring Dodo into the M2 Group and are confident that our offer to Eftel shareholders will be well-received. The acquisitions are an excellent complement to our consumer division and combined, our business possesses an excellent capability to grow our share of both the consumer and small to medium business markets. Through the due diligence process we were very pleased to find the businesses to be highly efficient with robust internal systems and processes; a testament to the skill and dedication of the Dodo and Eftel teams. We look forward to welcoming the Dodo and Eftel teams to the M2 Group.”

Dodo is privately owned, and was founded in 2001 by directors Larry Kestelman and Michael Slepoy. It’s recently diversified into the retail electricity and gas markets. Kestelman is also a director of Eftel, and has backed M2’s bid for the company, as follows:

“M2’s offer represents an attractive value proposition for Eftel shareholders. The transaction is a unique opportunity to increase Eftel’s presence nationally, enhance its product and service offering to its customers, and create a combined entity that will have a strong and sustainable future. Accordingly, I intend to accept the offer and make an ‘all shares’ election for all of the Eftel shares that I own or otherwise control, in the absence of a superior proposal.”

Dodo has over 400,000 customers and some 660,000 active Internet services, as well as more than 45,000 active energy customers. In comparison, Eftel has over 130,000 active Internet services, and has previously bought a number of other businesses, such as the October 2012 purchase of broadband and VoIP company Engin. The acquisitions will likely make M2 the fourth or fifth largest ISP in Australia, behind Telstra, Optus and iiNet and probably approaching somewhere near TPG.

What do I think of the acquisitions? Well, it’s about time someone bought the ailing Eftel business. I didn’t know Dodo was on the market, but it doesn’t surprise me. I am surprised by how large Dodo is. I have been kind of expecting the local ISP market to consolidate further, and it makes sense that M2 is the company to do it; TPG hasn’t shown much of an appetite for acquisitions recently, iiNet is still integrating its current batch of buys, and both Telstra and Optus are a little constrained in this area. I look forward to M2 emerging as a strong fifth wheel challenger ISP in the Australian market; I see this as overall a good thing.

His policy doesn’t seem to take account of the changing market. Not least because he’s been indirectly suggesting that either NBNCo install FTTN, a process that is unlikely to save money because NBNCo are not the incumbent and therefore have to buy the CAN before they can use it or that he tries to get Telstra to do it, difficult considering that they have refused to revisit the deal regarding the ducts.

Through I question how closely the NBN and Turnbull are related to this article.

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